Michelle L. Barker
Senior Tax Accountant
Baden, Gage & Schroeder, LLC
(260) 969-2536
On Feb. 17, President Obama signed into law the American Recovery and Reinvestment Act of 2009. The new law allows an individual who is involuntarily separated from employment between September 1, 2008, and January 1, 2010, to elect to pay 35 percent of his/her COBRA coverage and have it treated as paying the full amount.
The former employer will be required to pay the remaining 65 percent but, in effect, will be reimbursed by taking the subsidy amount as a credit on its quarterly employment tax return, Form 941. The employer may only take the credit after it has received the 35 percent premium payment from the individual.
Changes in 2009 Form 941
The following changes have been made to the 2009 Form 941 for the COBRA subsidy program:
n Line 12a asks for the COBRA premium assistance payments. Report on this line 65% of the COBRA premiums for assistance eligible individuals.
n Line 12b asks for the number of individuals provided COBRA premium assistance reported on Line 12a.
Count each assistance-eligible individual who paid a reduced COBRA premium in the quarter as one individual, whether or not the reduced premium was for insurance that covered more than one assistance-eligible individual (e.g., family coverage). For example, if the reduced COBRA premium was for coverage for a former employee, spouse and two children, you would include one individual in the number entered on Line 12b.
An alternative option
As an alternative option to claiming the full amount of COBRA assistance payments for the quarter on Form 941, the employer can decide to offset its payroll tax deposits throughout the quarter. The amount of the COBRA subsidy the employer provides during the quarter will be treated as having been deposited on the first day of the quarter and applied against the employer's deposit requirements. Therefore, timely deposits up to the amount of the subsidy will be deemed to have been made during the quarter, regardless of the applicable due dates for deposits.
According to the IRS, no additional information relating to the COBRA subsidy is to be submitted with the Form 941. However, those claiming the credit must maintain supporting documentation for the credit claimed. Such documentation includes:
n Information on the receipt, including dates and amounts, of the assistance eligible individuals' 35% share of the premium.
n In the case of an insured plan, copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier required under COBRA.
n In the case of a self-insured plan, proof of the premium amount and proof of the coverage provided to the assistance eligible individuals.
n Attestation of involuntary termination, including the date of the involuntary termination (which must be during the period from Sept. 1, 2008, to Dec. 31, 2009), for each covered employee whose involuntary termination is the basis for eligibility for the subsidy.
n Proof of each assistance eligible individual's eligibility for COBRA coverage at any time during the period from Sept. 1, 2008, to Dec. 31, 2009, and election of COBRA coverage.
n A record of the SSN's of all covered employees, the amount of the subsidy reimbursed with respect to each covered employee, and whether the subsidy was for one individual or two or more individuals.
You can contact Michelle Barker, a Senior Accountant in Baden Gage & Schroeder's Tax Division, with questions about quarterly employment tax returns and Form 941. Her telephone number is (260) 969-2536. Her e-mail address is mbarker@badencpa.com.
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Michelle joined Baden, Gage & Schroeder in 2001 where she provides clients with accounting and tax services including financial statement preparation, monthly controllership services, payroll services, and assistance with various accounting software packages. |
